Global Market Quick Take: Asia – August 25, 2023

What’s happening in markets?

US equities (US500.I and USNAS100.I): markets retreat ahead of Powell’s Jackson Hole speech

Major indices reversed and fell sharply, seeing the S&P 500 drop by 1.4% to 4,376 and the Nasdaq 100 tumble by 2.2% to 14,816. Nvidia (NVDA:xnas) erased nearly all its post-earnings gain to end the Thursday session flat as investors pocketed some profits. Ahead of Powell’s speech on Friday at the Jackson Hole Symposium, investors turned cautious in anticipation of a hawkish-leaning message from Powell. All 11 sectors of the S&P500 declined, led by information technology, communication services, and consumer discretionary. Mega-cap tech stocks retreated, seeing Tesla (TSLA:xnas) shed 2.9% and Amazon (AMZN:xnas) drop by 2.7%. In the software space, Autodesk (ADSK:xnas) gained 2.1% and Splunk (SPLK:xnas) surged 12.9% after reporting revenue and earnings surpassing estimates.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): 2-year yield back above 5% in a muted session

Treasuries gave back some of their sharp gains from the day before, seeing the 2-year yield climb back to above 5% to close 6bps higher at 5.02%. The 10-year yield added 5bps to 4.24%. Dovish comments from Philadelphia Fed President Harker (voter) stirred some bids on Treasuries briefly before yields drifted higher again in the afternoon.

Hong Kong & Chinese equities (HK50.I & 02846:xhkg): rally on corporate earnings and improved sentiments

The Hang Seng Index surged 2.3% and the CSI300 rallied 1.4% on green shoots of optimism stemming from solid earnings results from some leading Chinese companies. Wuxi Biologics (02269:xhkg) jumped 8.5% after reporting strong revenue growth. Tingyi (00322:xhkg) surged 7.4% after the instant noodle and beverage vendor on robust earnings. Meituan (03690:xhkg) soared 7.4% ahead of earnings release. After the market close, Meituan beat estimates in revenue and earnings but its ADR, up 4.9%, ended the New York trading around 1% below the closing level in Hong Kong probably due to a slower growth guidance for its food delivery business. Southbound net purchase as HKD4.5 billion.

In the A-share market, northbound flows snapped a 13-day streak of net selling, registering a net purchase of RMB3.2 billion of A shares by offshore investors. Fishery stocks soared on the ban on seafood imports from Japan. Food and beverage, media, and beauty care were other top gainers.

FX: Higher yields bring back dollar gains

The USD was stronger across the G10 board on Thursday and extended gains further at the Asian open as Treasuries retreated from the post-PMI bounce. USDJPY climbed back to 146 from lows of 144.54 and yields and yen will be in focus today as Powell speaks at Jackson Hole. GBPUSD took a look below 1.26 while EURUSD is testing the 200DMA at 1.08. AUDUSD may test the 0.64 handle support once again despite USDCNH remaining below 7.30.

Crude oil: range-bound as fresh catalysts awaited

Crude oil prices traded in a range on Thursday and appeared to be on track to close a second consecutive week in red amid easing supply concerns after OPEC+ production cuts were announced earlier. Meanwhile, China demand worries have continued even as US data remains mixed for now, and focus is turning to Powell’s comments at Jackson Hole. Any signs of concern on the economy can prompt market to bring forward rate cut expectations, helping offset some of the demand concerns.

What to consider?

US jobless claims again surprise on the downside

Initial Jobless Claims came in at 230k in the week ending 19th August, missing the estimate for an unchanged print at 240k. Meanwhile, the continued claims came in at 1.702mln (prev. 1.711mln, exp. 1.708mln). Data may be some relief for Fed Chair Powell as he takes the stage today at the Jackson Hole Symposium after weak PMIs and a downward revision in NFP. However, near-term Fed trajectory has many more variables to consider as CPI, PCE and NFP come out before the September meeting.

Japan’s core-core Tokyo CPI stays at 4% in August

The leading indicator for Japan’s nationwide CPI, Tokyo CPI, was released this morning. Headline CPI cooled from 3.2% YoY in July to 2.9% YoY in August and core measure (ex-fresh food) softened from 3.0% to 2.8%. The core-core measure (ex-fresh food and energy) however remained firm at 4.0% YoY in the month, keeping the message mixed on price pressures and the scope for a BOJ tweak alive into 2024.

BRICS adds more members

The Brics emerging market bloc has launched the biggest expansion in its history as Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates were invited to join. The marks a turning point as the expanded group can mean more global influence as a counterweight to the US and the G7. The bloc will also control most of the oil output in the world and a significant amount of natural resources which could give some room to develop an alternative currency and enhance the de-dollarization trend in the years to come.

Jackson Hole will be Powell’s test on dovishness rather than hawkishness

The Federal Reserve’s Economic Policy Symposium in Jackson Hole, Wyoming, is scheduled for August 24-26 and Chair Powell speaks on Friday, August 25 at 10am ET. This year’s theme is "Structural Shifts in the Global Economy". From recent commentaries, it appears that central bankers will keep the flexibility to hike rates further, while clearly avoiding committing to cut rates soon. However, a hawkish shock remains unlikely at this point and there will be little new signals for the September rate hike, given that there is more key data due ahead of that meeting. July PCE inflation data comes out on August 31 and nonfarm payrolls are reported on September 1, and these will hold the key to whether we get a September rate hike or not. Rather, the Jackson Hole symposium will be key to assess Powell’s dovishness meter. If he raises concerns on the economic momentum or the rising credit risks, that may prompt the markets to price in rate cuts to start earlier, and could be dollar negative.

Jackson Hole Agenda

The Kansas Fed has released the agenda of the Jackson Hole Economic Policy Symposium. After Powell’s opening remarks, the presentation and discussion will be on the topics of:

Has the Macroeconomic Environment Impacted Long-Run Shifts in the Economy?
Structural Changes in Financial Markets and the Conduct of Monetary Policy
Structural Constraints on Growth
Luncheon Address by ECB President Lagarde on European and Global Economy
Global Production Networks
Global Financial Flows
Globalization at an Inflection Point

Meituan revenue and earnings beat, soft food delivery guidance for Q3

Meituan reported Q2 revenue growing 33.4% Y/Y to RMB68 billion, slightly above the consensus of RMB67.2 billion. A stronger than-expected 39% Y/Y growth in core local commerce, including food delivery, in-store services, and instashopping revenues drove the outperformance. Adjusted net profit jumped by 272% Y/Y to RMB7.7 billion which was 70% higher than the consensus forecast, as the net profit margin improved to 11.3% in Q2 from 9.4% in Q1 this year and 4% in Q2 last year. Its operating margin improved to 8.7% in Q2 versus 7.5% in Q1 and 2.9% in the year-ago quarter. While its food delivery revenue grew 31% Y/Y in Q2, the management projected a 18-20% Y/Y growth for Q3, below analyst expectations.

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